Westpac, Austrac deal close

The penalty paid by Westpac is likely to be well over $1bn, significantly higher than the bank’s $900m provision.

The penalty paid by Westpac is likely to be well over $1bn, significantly higher than the bank’s $900m provision. Picture: David Geraghty / The Australian

Westpac and Austrac are nearing a $1bn-plus commercial settlement over more than 23 million breaches of anti-money laundering legislation, including payments that facilitated child exploitation in The Philippines.

The penalty paid by Westpac is likely to be well over $1bn, significantly higher than the bank’s $900m provision. Austrac is believed to be seeking at least $1.5bn.

Any settlement between the parties will ultimately have to be signed off by Attorney-General Christian Porter.

A source said on Wednesday night that an agreement was close and would possibly be announced within days. “They’re still negotiating,” he said.

Austrac took Federal Court proceedings against Westpac last November, precipitating a board and management upheaval.

The financial crime regulator alleged in its statement of claim that Westpac’s oversight of the banking and designated services provided through its correspondent banking relationships was deficient.

The bank also failed to manage its anti-money laundering and counter-terrorist financing obligations, resulting in “serious and systemic non-compliance with the AML/CTF Act”.

Specifically, Westpac allegedly failed to report more than 19.5 million international funds transfer instructions across nearly five years for transfers into and out of Australia.

The bank also failed to carry out appropriate customer due diligence on transactions to The Philippines and Southeast Asia “that have known financial indicators relating to potential child exploitation risks”.

“Westpac failed to introduce appropriate detection scenarios to detect known child exploitation typologies, consistent with Austrac guidance and their own risk assessments,” Austrac said.

Austrac’s detailed criticism of the Westpac board and senior management led to the resignation of Brian Hartzer as chief executive.

Chairman Lindsay Maxsted brought forward his retirement, and non-executive director Ewen Crouch did not seek re-election.

When Peter King — the interim chief executive and former chief financial officer — succeeded Mr Hartzer in April, he faced the challenge of replacing about half of his senior management team.

Last July, Mr Porter launched a stinging attack on Westpac and its new chairman, John McFarlane, over their dealings with Austrac, accusing the bank of arrogance and running a PR campaign while in delicate mediation talks.

Mr Porter’s broadside came as the embattled bank revealed it had found a further 365,000 “incomplete or inaccurate” reports made to Austrac in relation to transfers worth more than $10,000.

After receiving a “notice to produce” from the agency, Westpac also said it had found 175,000 transactions that had not been reported at all.

The Attorney-General, who warned Westpac he had the final word in signing off on any settlement, declined to comment on the substance of the case because it was before the courts.

“Westpac has initiated a PR campaign while this matter is in mediation, and that PR campaign appears at odds with its apparent contrition shown at the time the offending was exposed,” Mr Porter said.